Three Outside Up - Bullish Reversal Candlestick Pattern
Three Outside Up Definition
The three outside up pattern is a bullish reversal signal. The first candlestick in the formation is a small black (red) candlestick that closes near its low. The second candlestick completely engulfs the first candlestick and closes near its high. Most often the second candlestick will display an increase in volume, from the running of stops. The third candlestick then breaks the high of the second candlestick and closes strongly.
Three Outside Up Charting Example
The size of the third candlestick will often provide some indication to the strength of the reversal pattern. Also, if the third candlestick is able to stay above the low of the second candlestick, it provides more support to the bullish case. Traders should wait for the high of the third candlestick in the three outside up pattern to be broken prior to initiating long positions.